Minn. $500 tax rebate plan proves hard sell

ST. PAUL, Minn. (AP) -- The up-to-$500 tax rebate for every Minnesota homeowner under Gov. Mark Dayton's budget plan stirred sharp disagreement Tuesday about whether it comes at too steep a price and if the breaks would be washed out by other property tax increases.

Dayton's plan for giving 1.5 million homeowners the tax break beginning next year was a flashpoint as legislative committees examined the Democratic governor's broader tax package. That rebate comes at a hefty cost — more than $700 million a year — and depends on a significant expansion of the sales tax and upper-end income tax increases.

Republican Sen. Julianne Ortman openly accused Dayton of an election-year ploy, delivering rebates months before he faces re-election in 2014. Other Republicans also said there is nothing to stop local governments from eroding the tax relief with levy hikes.

"We can guarantee folks the tax increase, but we can't guarantee them the tax relief," said Sen. Dave Thompson, R-Lakeville. "To me that seems like a pretty precarious position to put taxpayers in."

Democratic legislative leaders haven't exactly rallied around the idea of an across-the-board rebate, either. Some don't like that it treats every property the same, whether a person's property tax bill is $550 or $5,500. Homeowners charged less than $500 in property taxes would get a rebate equal to what they owe.

One of the priority bills in the Democratic-led House would expand existing relief programs, which base property tax breaks on how much of person's income goes toward paying the tax.

"I think that kind of targeted property tax is something there may be more interest in the Legislature in doing because it really does go to those folks that are really being hit hard because of either they lost their job, they're a senior on a fixed income or a middle class Minnesotans whose income is maybe just starting to grow again," House Speaker Paul Thissen said on a Minnesota Public Radio call-in show Tuesday morning.

Dayton said he opted for his approach because he wanted a direct tax break that didn't get mired in already-complex formulas. He said he is responding to a public that has long regarded the property tax as the most onerous, partly because those bills have spiked dramatically over the last decade and have to be paid regardless of employment status.

"If people want to just sit back and carp and deny people a $500 property tax rebate, they're sure not in touch with the people I hear from and I talk to every day," Dayton said. To accusations that the plan was timed to his expected re-election bid, Dayton dismissed detractors as making needlessly "crass cracks."

Any property tax relief proposal is unlikely to take hold before 2014 because most breaks are given as credits or exemptions on income tax forms. This year's tax filing season has already begun.

The Dayton administration is also striking back against the notion that the annual rebates will be an invitation for local governments to raise property taxes, thus cutting into residents' tax relief. The governor's budget plan includes $120 million more for allowances to cities and counties, which the administration hopes will reduce the need to resort to property taxes to maintain local services.

Revenue Commissioner Myron Frans told House lawmakers that state leaders would be relying on local officials "to make the right decisions." Dayton said to assume local officials would go on a tax and spending spree is insulting to them.

Rep. Greg Davids, R-Preston, wasn't convinced by Frans that there were ample safeguards to keep cities and counties from using the property tax rebates to bump up rates.

"I'm still concerned because I was a mayor and I did it all the time," Davids said.

At another House hearing late in the day, GOP Rep. Pat Garofalo pressed Frans about whether recipients of the $500 rebate would have to pay federal income taxes on it. Frans acknowledged that the roughly 45 percent Minnesota taxpayers who file itemized federal returns would indeed be subject to that liability.